Jump to content

Fed Lets Out A Squeaker


Recommended Posts

  • Replies 53
  • Created
  • Last Reply
I know I'm a friggin' boyscout on such matters, but is anyone else bothered by the blog invocation of the FOMC statement opening passages hours before it was released?

 

:huh:

What? You think T is setting up bloggers to be the perfect analist passage for leaks? I'm not surprised or anything, since the whole financial structure is a pyramid of inside information used to cheat the levels below one's own.

Link to comment
Share on other sites

Doc, you were wondering why Fannie Mae 10-year debt should be fetching a yield below Treasurys of comparable maturity. I think the FOMC statement may suggest an answer:

 

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt.

Their Lips Are Moving

 

The Fed acknowledges that agency debt is in limited supply, and (in likely response) it is scaling back its intended purchase by $25 billion. To the extent that the Fed was mechanically purchasing agency debt according to the original $200 billion target amid tight supply, one could imagine their demand pushing yields below its Treasury benchmark.

 

Begs the question, "Why is there 'limited availability'?"

 

Well, holders aren't selling. That would suggest that China did not take the opportunity to sell into the Fed's demand. Nor, apparently, others. I could see institutional investors being happy to retain their holdings (to maturity) and collect the coupons, since the yield they probably enjoy is going to be quite difficult to find again with the cash they'd acquire by buying into the Fed's demand. And, since they're effectively Treasury-equivalent, institutional investors with an eye on fiduciary obligations are no longer compelled to sell on increasing default risk.

 

Maybe.

Link to comment
Share on other sites

Last point.

 

The fact that the Fed has scaled back its program for purchasing agency debt creates one helluva a powerful argument to go tell foreign public holders of the same to go #*@& themselves, should Treasury decide, in fact, that they are no longer Treasury-equivalent, nor money-good.

 

"What do you mean the Treasury is not going to stand behind all this agency debt we're sitting on?!?!?!"

 

"Listen. The Federal Reserve made clear during 2009 that it would purchase agency debt from all takers. You chose not to sell into that demand, and in November 2009, in the absence of sufficient supply, the Fed had to scale back its purchase program from $200 billion to $175 billion. Where were you? You come to us now to complain?! We made our offer, you could have sold your agency debt back to, but you chose to hold on. Sorry - only Ginnie Mae's enjoy the full faith & credit of the U.S. Treasury. Bye now...."

 

<Click>

Link to comment
Share on other sites

Radio Free Wall Street 11/4/09

Lee Adler and Russ Winter discuss the problem in Japan that could bring down world markets, the problem with Treasury borrowing, and the outlook for stocks.

 

Not a subscriber? Click here to hear a free excerpt.

 

To subscribe and hear this podcast right now, click here!

 

audio_mp3_button.png Radio Free Wall Street 11/04/09 [41:23m]: Play Now | Play in Popup | Download (1)

Subscribers, click player to start.

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

  • Tell a friend

    Love Stool Pigeons Wire Message Board? Tell a friend!
  • Recently Browsing   0 members

    • No registered users viewing this page.
  • ×
    • Create New...